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The basic objective is to make at least 5 percent long-term annual return at minimum risk.
• First, pay off all your debt.
• Invest in risk-free savings accounts if they pay interest at 5 percent or greater.
• You may be able to invest in “bonds” — government or company debt — that “yields” (pays interest) more than 5 percent.
• Long-term, direct investment in suitable property — maybe your home — is attractive. Long-run property prices — really the price of the land beneath the property — have risen about 8 percent a year. The supply of land is fixed, yet demand tends to rise, driven by demand for larger houses, second houses, and a falling number of people per household. Where popu lation and wealth are increasing — for example, most attractive and warm parts of the United States or Southern Europe, or expanding cities anywhere — land is a good long-term bet.
• Be chary of the stock market. It may fall and fall. If you have enough money to invest, consider a “market-neutral hedge fund,” one not affected by general stock market fluctuations. Hedge funds may be lower risk and more attractive than traditional “mutual funds,” which depend on rising stock markets.
• Shun anything — shares, property, or the latest hot trend —with recent sharp appreciation. Bubbles burst. Wait until prices fall and then stabilize. Never buy in a market that is rising or falling fast. In the short term, stick to safe investments even if you can only get 5 percent.
• Should you start your own business? Most millionaires become rich by starting a venture. But beware. Only one in twenty new businesses succeeds. Probably 99 percent of the payoff comes from 1 percent of the new ventures. Will you really be in the lucky 1 percent?
• Only invest in a new venture if you also have savings to fall back on. Don’t risk losing everything. If you won’t sleep at night, don’t invest. Becoming mega-rich probably won’t make you happy anyway. It’s a very bad gamble.
• If you’re passionate about starting your business, wait until you have cash that you can afford to lose. Or go for a low-risk venture that requires little capital — for example, a stall in the neighborhood market, a service business like mowing lawns or cleaning cars, or a delivery service using your own car.